March in Arizona means Spring Training, Major League Baseball’s annual descent on the state to take advantage of the hot weather and amongst other things, build a sense of cohesion within the teams.
March in Arizona means Spring Training, Major League Baseball’s annual descent on the state to take advantage of the hot weather and amongst other things, build a sense of cohesion within the teams.
The 2018 Captive Insurance Companies Association (CICA) conference arrived in Scottsdale on 11 March with similar ambitions.
The official theme may have been ‘Challenge of Change’ but what seemed most prominent throughout the conference was the need for collaboration to help the industry not only adapt to change, but in the words of CICA president Dan Towle, “turn today’s challenges into tomorrow’s successes”.
The need for cooperation was reflected in the keynote speech given by cultural-explorer Chris Bashinelli, who emphasised to the delegates that they were “more powerful together than they ever could be on their own”.
Bashinelli described CICA as the “captive insurance stoop”, a connecting place and a mixing pot of ideas and beliefs, which can help bridge the gap and change “them” into “us”.
This idea was reflected by Towle, who suggested that the conference functioned as a catalyst for the attending 555 delegates from 16 countries and 43 states to aid the sharing of ideas and fostering of collaboration.
In his opening speech, Towle said: “By bringing together some of the most innovative and creative captive leaders in the world CICA can help our industry find new approaches for using captives to manage risks improve business results.”
In the spirit of collaboration, Julie Mix McPeak became the first the National Association of Insurance Commissioners (NAIC) president to attend CICA.
In her speech in the conference’s opening session, Mix McPeak, spoke of her pride at her involvement in the captive insurance industry and at watching “the evolution of the risk management programmes which have been successfully incorporated into captives”.
She added: “The future of captive insurance is so bright because of the entrepreneurial spirit that the industry celebrates.”
Stepping up to the plate
The importance of better education on captives was also a central theme at CICA, with Towle suggesting in his opening speech that education represents a “cornerstone of promoting and protecting the often misunderstood captive industry”.
The role improved education can play in counteracting the impending talent crisis was also emphasised by professors Michael Zuckerman and Zachary Finn, both of whom led panel discussions at the conference.
The US Bureau of Labor Statistics reported in 2016 that they expected 400,000 insurance professionals to retire over the next few years, leaving a huge worker shortage.
Finn, a professor and director of Davey Risk Management and Insurance Programme at Butler University, explained that educating millennials on why people in the industry do what they do and how it affects society could be vital to solving this “existential talent crisis”.
Finn said: “The supply side is a major problem, compounded by the stereotypes of working in insurance. Those of you that feel you have a good young workforce, get ready because they’re about to get poached. The talent crisis is coming.”
“I think what is needed is more courses to describe what we do, but also more messaging about why we do what we do and how it helps society.”
Finn’s statistics showed the number of risk management and insurance graduates between 2017 and 2020 was estimated at just 15,072–a clear discrepancy between supply and demand.
He explained: “It’s really close to 2020. These figures sounded okay in 2012, but we’re getting there really fast, and the problem is really a big one.”
“There is going to be some rough years, there are carriers and brokers that have a world of pain coming.”
The issue, according to Finn, is that young people are not properly informed of what a role in the insurance industry entails.
He said: “It’s not that millennials have a problem with working in the insurance, captive or reinsurance industry, they just don’t know what that means. There isn’t knowledge of the problems we solve and the people we help. We aren’t giving millennials enough info to make that informed career decision.”
Finn’s programme at Butler educates students through experiences, each student has to complete two internships for academic credit and are involved with operating the nation’s first student run captive insurance company.
Zuckerman, professor of risk, insurance and healthcare management at Temple University, expressed similar views and suggested that offering millennials “adventure” within the captive industry is key to solving the talent crisis.
According to Zuckerman, attracting young talent and keeping it in the industry is vital.
He said: “Offering adventure will help attract millennials and keep them in the industry. Millennials want to be challenged and they want to have different experiences, they don’t want to be doing the same thing day in day out.”
“We need to communicate the importance of what we do for our clients and what that means for their stakeholders—this needs to be the focus of our message to get serious students interested in our industry.”
Zuckerman added: “There has to be a more streamlined path into the industry. We have to develop a pathway, the brokers have developed it and the underwriters have developed this pathway and I think the captive industry has to figure that out.”
“Mentoring can be the key to unlocking a career of adventures for young talent in the captive industry.”
Another member of the panel, Erin Fleischman, a student from Temple, said the benefits of working in the captive industry need to be better advertised to students.
She said: “We are looking for a good work-life balance, good company culture and the opportunity for growth and I believe the captive industry can offer all of those things.”
“Millennials just want companies to be transparent, we want to understand what we are getting ourselves into, understand the industry and understand the day to day experience.”
Zuckerman emphasised the importance of a good work-life balance for millennials and suggested captive companies would need to adapt and become more flexible.
He said: “Flexibility is important more than ever, the industry is going to have to get more creative. I think millennials want to be very productive. The more flexible the company can be, in a very proactive and productive way will translate into a more resilient organisation and a more profitable organisation. They will get more out of the young talent.”
Playing hardball with the IRS
The Internal Revenue Service (IRS) and its post-Avrahami approach to captives was a large talking point CICA. According to John Dies, managing director of tax controversy at alliantgroup, playing hardball by standing up to the IRS may be the right answer for good captives.
Speaking at the conference, Dies suggested the impact of winning a case against the IRS could be felt across the captive industry.
He said: “It is great for the industry when a captive stands up to the IRS, wins and creates a precedent that the industry can use. We have seen the impact in cases where outsiders thought there was not a chance a captive could win and they made changes in the industry–and I believe that is positive for the industry.”
According to Dies, in the right context, fighting the case is the correct move for a good captive.
He explained: “In many cases, great captives that are well done and could have minor flaws are being treated with the same approach as those with glaring issues.”
“The problem is that some folks with good captives give up because they are tired or uncomfortable with the process and are very often drawn to accept offers and resolutions that are not fair, not appropriate and in many cases not best for them economically.”
Dies added: “I’ve seen a number of instances where I could go to court, win some issues, and finish substantially better for the client than if they took the deal that is being offered in the exam.”
“It is very rare in tax to see a situation where offers in exam and appeals are not as good as the offer a taxpayer could get from a judge or a jury and for me that is why the decision to pick the fight on the righteous cases is an important one.”
He concluded: “If the best deal is going to come from that venue, and you have the ability to do it because the finances are available to you, especially in this climate, I would.”
Leftfield risks
There was an emphasis at CICA on the importance of addressing the challenges presented by some of the more unusual, leftfield emerging risks. Blockchain, cryptocurrencies, cyber risk and terrorism coverage were all covered in conference sessions.
As was the potential for captives in the cannabis industry. Joe Holahan, attorney at Morris, Manning & Martin, suggested the flexibility offered by captive insurance makes it a tailor made solution for the cannabis industry.
Holahan said that while it is no secret that the cannabis industry is “big business now”, with an estimated $9.7 billion in legal cannabis sales in 2017, its unique risks can make insurance problematic.
He explained: “These are unique risks, risks that are hard to place and when they are placed with more traditional carriers they can be subject to strict limits and exclusions.”
“The captive industry has grown up around those kinds of risks.”
“If ever there was an industry that could benefit from captive insurance, it is the cannabis industry.”
According to Holahan, giving the insureds the power to shape their own coverage could provide the cannabis industry with more appropriate and cost effective cover.
He said: “The cannabis industry involves risks where your risk management is especially important to the risk profile and again that is an area where captives excel.”
“The owners of the captives are the insureds and they can come together and develop good risk management guidelines and procedures where they can share their risk, and they’re the best qualified to know what the risk is and how to insure it.”
He added: “Captives really excel at this kind of thing. Until the industry grows and matures, the traditional market has as low incentive to get involved because the underwriting is difficult and the risk is difficult to assess, and that is where captives have a valuable role to play.”
